Værdiskabelse i Private Equity: Et casestudie af afkastet i tre nordiske kapitalfonde

Kristian Schmidtsdorff Drivsholm & Rasmus Jacques Henri Gaudin

Student thesis: Master thesis


This thesis examines the returns in the Nordic buyout market in the period 1990-2009, and how the value creation is represented in the returns.
First, the history of the buyout market is described in detail, followed by thorough explanation of how the typical buyout fund is organized. This includes key characteristics such as the stakeholders, and how the returns are composed of the value creation in the portfolio companies. Emphasis is placed on value creation in the portfolio companies, as well as the need for alternative return measurements due to the irregular timing of cash flows, and MOIC is identified as the preferred measurement in this thesis.
In the first analysis, the returns in the Nordic buyout market is analyzed, using a dataset from the private equity database, Preqin. Here, it is identified that the returns of the buyout funds, are decreasing over time, which harmonizes with an increase in raised buyout funds, indicating increased competition between the funds. Further tests are conducted, and the results indicate that only a smaller fund size, can explain the difference between top, mid, and bottom performing funds. Afterwards, three buyout funds are identified as subjects in the following case studies: Erhvervsinvest II, Polaris III and Segulah IV, from top, mid and bottom, respectively and all raised between 2007-2009.
Following a multiple valuation of the portfolio companies in these buyout funds, the value creation of each company is analyzed and illustrated through five identified components: revenue growth, EBITDA-margin growth, multiple expansion, debt paydown and net cash flows. The value creation is then measured on a fund level, and the results indicate that Erhvervsinvest II creates more value in each component except debt paydown. This is tested in a sensitivity- and scenario analysis, which confirm the results and illustrate that few elements separate the returns in Polaris III and Segulah IV. It is also identified that while few companies represent most of the value creation in Polaris III and Segulah IV, the value creation in Erhvervsinvest II is more evenly divided between the companies.
The operational improvements in the portfolio companies made by the fund managers are subsequently tested using an Economic Value Added (“EVA”) analysis, to support the conclusion with an accounting-based approach. This analysis concludes that most economic value is created in the portfolio companies of Erhvervsinvest II, which over the lifespan of the fund, manage to create EVA of DKK 40 mio. Neither Polaris III nor Segulah IV manage to have a single year with positive EVA.
In conclusion, the best performing buyout funds in the Nordic market in the period 1990-2009 are characterized as overall small funds. The returns, illustrated through Erhvervsinvest II, show a broad value creation that utilizes each of the value creation components, but financial engineering to a lesser extent.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2020
Number of pages126